Asia traded with a more cautious pulse on Thursday as investors questioned whether even strong earnings could keep stretching the AI rally higher. TSMC delivered another powerful result and raised its sales outlook, but the semiconductor complex failed to respond, marking the clearest signal of the day. The market is not doubting the strength of AI demand. It is questioning how much of that strength is already reflected in prices. US equity futures were subdued, Europe softened, and the 10-year Treasury yield edged back toward 4.56%. Brent held near $84.80/bbl as renewed tension in the Persian Gulf kept a geopolitical premium embedded in energy markets.
The MSCI Asia Pacific Index slid 0.3%, with declines in Japan and Australia, as chipmakers pulled down Wall Street amid valuation concerns. Contracts on the Nasdaq 100 dropped 0.5% after the underlying gauge lost 1.6% on Thursday, with Netflix shares falling over 8% in extended trading after forecasting a second straight quarter of slowing sales growth. In a renewed bout of volatility Thursday, a US gauge of chip giants slumped more than 4% as investors questioned whether tech stocks have grown too richly valued amid massive capex plans. Taiwan Semiconductor Manufacturing Co.'s American depositary receipts dropped 2% as a solid outlook was overshadowed by a higher spending forecast. "The action in the chip stocks going forward is still the most important issue for the stock market," said Matt Maley, chief market strategist at Miller Tabak, noting that chip stocks are showing meaningful cracks and will need to see a strong and sustainable rebound soon or raise warning flags.
The escalating conflict in the Persian Gulf continues to impact markets as the US military launched fresh strikes against Iran, raising concerns that Middle East tensions will further disrupt energy supplies. Brent crude climbed for a fourth consecutive session to trade above $85 a barrel, but oil prices fell as traders assessed the risks from the renewed clashes. The renewed hostilities have also cast doubt over the interim peace agreement signed by Washington and Tehran about a month ago, with the arrangement largely unravelling amid growing disputes over control of the Strait of Hormuz. The latest military action followed US President Donald Trump's pledge to intensify strikes until Iran stops targeting commercial vessels in the Strait of Hormuz and agrees to keep the waterway open. Iran's Revolutionary Guards said after the incident that "the Strait of Hormuz will be closed until further notice and until the end of American interventions in this region," according to State news agency IRNA. United States Central Command (CENTCOM) countered that the strait was "open to all vessels seeking to lawfully transit."
Despite the broader market decline, Taiwan Semiconductor Manufacturing (TSMC) posted a record second-quarter net profit that jumped 77% and beat market forecasts, as surging global demand for AI processors boosted earnings. The world's main producer of advanced AI chips also raised its full-year revenue growth forecast in U.S. dollar terms to slightly above 40% from more than 30% previously. TSMC said capital expenditure in the next three years would be significantly higher than in the previous three. "Recent volatility in high-tech shares appeared to be driven more by supply-demand factors than by fundamentals," noted Hiroki Takei, pointing to a sharp fall in South Korean shares linked to issues around leveraged ETFs and elevated margin buying by individual investors in Japan in recent weeks.
Markets were rattled by hawkish comments on Monday from Federal Reserve Governor Christopher Waller, who said the US central bank may need to raise interest rates "in the near term" if coming data show inflation continuing well above the 2% target. Fed funds futures are pricing in an implied 43.3% probability of a 25-basis-point hike at the US central bank's next two-day meeting on July 28-29, compared to a 34.2% chance on Friday, according to the CME Group's FedWatch tool. Fed Bank of Kansas City President Jeff Schmid said inflation is his biggest worry given the risk of a further acceleration in the months ahead, while his Dallas counterpart Lorie Logan called for higher rates, saying inflation does not appear to be heading sustainably back to the target. The yield on the US 10-year Treasury bond was up 2.2 basis points at 4.6297%, with the US dollar index holding at 101.29, trading around its highest levels of the month. While inflation reports this week eased concerns over near-term Fed hikes, the escalating conflict in the Persian Gulf has renewed concerns about energy supplies and the outlook for inflation.
